The Credit Card Conundrum: How to Accept Credit Cards as a “High Risk” Merchant

If you’re trying to accept credit card payments, you’re about to find out. Cash used to be king of all financial transactions.

Now, fewer people use cash for their payment method. In fact, 77% of consumers prefer to pay with credit or debit cards, and 12% like to have cash on hand to pay. Even digital payments are gaining momentum.

That means that your business needs to be ready to accept these types of payments, too. That can be difficult for high risk merchants, who often can’t sign up for payment processing due to the nature of their business.

Read on to learn more about these high risk merchants and how you can get a payment account if you’re one of them.

What is a High Risk Merchant?

When you start a business and accept payments, you sign up for a merchant account to process credit card transactions. For most businesses, this isn’t a problem. You can sign up for PayPal, Stripe, Square or any type of merchant account.

However, certain types of businesses are considered to be high risk. Your mind will automatically think about dating, adult websites, or gambling. Yes, they are high risk due to the amount of fraud. Did you know that pawn shops, bail bonds, and travel are high risk merchants, too?

Yes, even travel is considered to be a high risk merchant.

The reason why these merchants are high risk is that of chargebacks and fraudulent transactions. For example, in the travel industry, there are a high amount of chargebacks. That’s due to the nature of the business.

Since trips are booked so many months in advance, there’s a higher chance for cancellations. Travel coordinators will then have to issue a refund. Often they’ll have kept the deposit to make up for the work already done to book the trip.

Customers get upset and then file a chargeback with their credit card company. Whenever chargebacks occur, banks lose money, and banks aren’t in the business of losing money.

What Happens to High Risk Businesses

What happens when you’re a high risk merchant? Well, you’re often declined when you try to sign up for an account. PayPal, Square, and Stripe will not work with high risk businesses.

Even if you do sign up successfully, you could have your account terminated for violating their terms and conditions.

There are companies that accept high risk merchants. However, you’re going to have to be prepared to be treated much differently than other businesses.

You’ll find that there are high fees just to open an account with some processors. You may come across unreasonably high transaction fees, set up fees, and chargeback fees.

Some processors require that merchants have what’s called a merchant account reserve. This amounts to an interest-free loan to your bank in case there’s a chargeback. The reserve allows the bank to hold between 5% – 10% of sales for about 6 months.

Consumer Protection Measures

Credit card companies are putting their customers’ security first. That’s at the expense of these businesses.

Even businesses in low risk industries are subject to some of these measures if they sell to countries outside of the U.S., or have online transactions where the card isn’t present.

It’s understandable since fraudulent transactions cost just airlines up to $4.8 billion a year.

Find High Risk Merchant Providers

It’s not all doom and gloom if you’re a high risk merchant. There are many high risk merchant account providers who specialize in these industries.

As we mentioned earlier, you can’t just sign up with Stripe or Square. PayPal has a very low tolerance for high risk businesses. Just one chargeback could kill your account.

Get Recommendations

You can start finding high-quality merchant providers by asking around. Check with your industry association, as they could recommend a few providers they work with.

If you’re not a member of an industry association, a membership could help you get approved for a high risk merchant account. It shows banks that you’re legitimate and established.

Look Over Your Finances

Before you start to compare merchant account providers, take a look at your finances. You need to show banks your creditworthiness over a period of time, usually 6 months.

They’ll want to see transactions with zero chargebacks, steady business growth, and predictable income. You may be tempted to fudge the numbers to look good to bankers. Don’t do it, because if you’re caught, you will be declined.

They’ll also want to see your plans to grow your business, like marketing plans, security policies, and customer service policies.

If you’re a company that’s just starting out, you can give the payment processor as much as you can. Be transparent about the fact that you’re just starting out.

Comparing High Risk Processing Companies

Not all high risk processors are created equal. Some offer high risk merchant account instant approval, while others work only in certain industries. Others specialize in all high risk industries. Check out this website for more information.

You will notice that providers offer different rates. You want to ask if you have the opportunity to lower those rates once you prove yourself as a good account.

Getting a High Risk Merchant Account is Possible

Being considered a high risk merchant isn’t easy. After all, you just want to go about your business and accept payments from your customers in an honest way.

Unfortunately, many fraudulent transactions occur, and payment processors are tightening restrictions and increasing fees to prevent their companies from losing money.

There are ways around it and that includes finding the right merchant provider to work with, even if you’re a high risk business. You just need to know what to expect ahead of time.